Trading with point and figure

- Modest day for data with focus on German Ifo and Japan Manufacturing PMI;
digesting German, NZ election results, awaiting Japan election announcement,
Bank of England FPC statement and hefty run of central bank speakers

- German Ifo: expected to remain very strong, but marginally up on August;
post-election October survey of more interest

- Germany election: balkanisation of German politics, large East-West
divides all too evident; Merkel faces very difficult task in forming
3-way coalition with FDP and Gruene; EU and Eurozone reform even more
challenging

- Week Ahead: central bank conferences and speakers dominate schedule,
gamut of Japan indicators, busier week for UK and US stats, while
Eurozone awaits run of preliminary September readings

..........................................................................

********************
** EVENTS PREVIEW **
********************

Given that the economic calendar is rather short of major data, with the overnight Japan Manufacturing PMI to digest ahead of the German Ifo survey, the focus will inevitably fall on the German election result, and the likelihood that PM Abe will call a snap election at his press conference later this morning. The Ifo survey is expected to be little changed at post reunification highs, with Friday's considerably better than expected PMIs more a case of 'catch up' with prior Ifo readings rather than skewing risks to the upside today. It is, in any case, the next Ifo survey that will be of more interest, in so far as corporate reaction to yesterday's election result. Otherwise a further highlight will be the Bank of England's FPC statement, which is not expected to see any new macro-prudential measures, though there will likely be the suggestion that the banking sector's counter-cyclical buffer may be raised further. Comments on Brexit related risks for the sector, and MIFID II implementation will also be closely watched.

There is little or nothing that is positive to be taken from the German federal election result, though in market terms, there is probably little to react to. Be that as it may, the fact that the CDU/CSU and SPD only managed to garner 54% of the total vote, with four other parties also entering the new Bundestag led by the far-right AfD, underlines an even greater fracturing or 'balkanisation' of the German political landscape. The even more glaring divides are between the support for the AfD in East Germany, where it was the second strongest party with 21.5%, contrasts with 11% in West Germany, and along gender lines, above all in East Germany, where 26% of men voted for the AfD, against 17% of women (nationally 16% vs 11%). It is also worth noting that the CSU losses in Bavaria (losing 10 ppts vs 2013) were a hefty contributor to the CDU/CSU's losses. It would be easy to blame the strength of the AfD vote on Merkel's refugee policy, but that would be a surface read, given that the AfD vote was strongest in many areas with very few refugees, and indeed while the CDU/CSU haemorrhaged 1 mln to the AfD, one million votes for the AfD came from previous non-voters. The latter underlines that this was also about a very disparate picture in terms of Unemployment across the country, with many areas in East Germany still seeing rates above 10%, and many areas where incomes remains very low compared to the national average, i.e. underlining growing levels of income and social inequality, just as is evident across much of the developed world. Be that as it may, with the SPD choosing to go into opposition, the question now is how long will it take to fashion the only possible coalition of CDU/CSU, FDP and Gruene, in so far as finding common ground between FDP and Gruene will be very difficult, and in turn this will also tie Merkel's hands in negotiations over EU and Eurozone reforms; though it will make little if any difference to the German position on Brexit negotiations.


UPDATED: The Week Ahead - Bullet point highlights: 25 to 29 September 2017

- Digesting very fractured German Federal election and French Senate results, in what will be a busy, but heavily back-loaded week for economic data, and indeed a very busy week for central bank speakers (Fed, ECB, BOE and BoJ. The RBNZ seen holding its policy rate along with most EM central banks, outside of Ghana, where a 100 bops is expected

- Politics, both domestic and geopolitical, will continue to cast a long shadow, with Abe expected to call a snap general election in Japan , while the UK Labour Party holds its annual party conference. Tensions in the Korean peninsula, and a high risk of military conflict in the wake of the independence referendum in Iraq's semi-autonomous Kurdish region will also be in view.

- Statistically, the US has Consumer Confidence, Durable Goods Orders, Advance Goods Trade Balance and Personal Income/PCE, while Japan logjams the end of the week with the gamut of inflation, labour market and monthly activity indices. A busy week for the UK sees the CBI Distributive Trades and various other surveys, Consumer Credit & Mortgage Lending, monthly Index of Services, Q2 Current Account and final Q2 GDP & Business Investment. The Eurozone will find its highlight in preliminary September national (Germany, Spain, France & Italy) and Eurozone CPI readings, with surveys aplenty, including the EC's various business confidence measures.

- On the central bank front, the BoE's "20 years on" (from independence) will gather the gamut of the G7 central banks' 'great and good', while there has rarely been as busy a week for G7 central bank speakers, with the ECB also hosting its 2017 research conference. Central banks in New Zealand, Argentina, Colombia, Czech Rep., Egypt, Mexico, Nigeria and Thailand are seen holding policy rates, while Ghana is expected to cut its benchmark rate to 20% from 21%.

- Corporate earnings will remain light, but highlights are likely to include Accenture, BlackBerry, BooHoo.com, Conagra Brands, Hennes & Mauritz, Mediaset & Micron Technology.

- Govt bond supply is led by a total £101 Bln in the USA and a lighter week for supply in the Eurozone with a total of ca EUR 13.0 Bln from Germany and Italy.

from Marc Ostwald
 
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